Small Business Entrepreneurs Triumph After Layoffs

May 27, 2009— -- Millions of Americans in the past year, from Wall Street bankers to Detroit autoworkers have lost their jobs as a result of the financial crisis. While many collect their unemployment and send resumes, a growing number of these displaced workers are striking out on their own.

They are finding creative solutions not just to their own unemployment but to problems they believe can be fixed by creating new businesses.

"This is truly a remarkable time to become an entrepreneur," said Darren Hardy, publisher and editorial director of Success magazine.

"Every once in a while the capital system reshuffles the deck. Those who had control of markets and the supply chain suddenly lose it. Where it was once difficult for small businesses to punch into market, it is now quite easy. There has been a disruption of the status quo," he said.

When Bear Stearns collapsed last autumn, Stephen Chen didn't take long to start at another job.

Rather than scouring job postings and sending out countless resumes, Chen, 26, took matters into his own hands and saw unemployment as an opportunity.

Within days of being laid off Chen went from fashioning complex computer models for a select group of powerful hedge fund managers to fashioning shoes for people around the world.

That entrepreneurial impulse has struck thousands of people across the country, who despite difficult economic times have decided to start their own businesses. The current economy is fraught with challenges for small business entrepreneurs. It is harder than it has been in decades to secure loans or lines of credit, health insurance is more expensive and home equity loans are scare due to falling property values.

But the recession has also created a unique opportunity for small, nimble startups to exploit niches left opened by lumbering or failed corporate giants.

Partnering with a two friends -- one of whom had also recently been laid off from a Wall Street firm -- Chen started a business, GreenSoul Shoes, which produces sandals from recycled automobile tires.

"The company is something we had been talking about for a while. We wanted to start a company that would be green and help people. If I hadn't been laid off, I don't know if the idea would ever have become a reality. The time was right," Chen said.

Chen received offers from several other firms, but decided instead to go into business with Iris Chau, an old friend who had also recently been laid off at JP MorganChase, and her husband Alistair Onglingswan. Onglingswan first came up with the idea for the company when he saw local people in the Philippines turning tires in shoes.

"We had discussed creating a company with certain core values: Stewardship of the planet, stewardship of the company, and stewardship of the people you work with," Chen said.

Green Companies and Startups

GreenSoul Shoes, has a mission and a message -- the company, Chen says, will be the first shoe manufacturer to use 100 percent recycled materials; for every pair it sells another pair will be donated to a needy child; and the company will employ and pay a living wage to local workers in Cambodia, the Philippines and Peru – but it's very much a for-profit enterprise.

"Nonprofits are terrible businesses. They just burn through cash. I like to call our company and business with a social mission," Chen said.

Chen said he and his partners likely will not draw a salary for another year. Much of the capital needed to start the business – about $30,000 – came from his severance package from Bear Stearns.

He and his partners, he says, will likely break even in a year and won't begin drawing a salary for another year after that.

Chen says he already feels more fulfilled in a few months at GreenSoul than he did in his two years of work at Bear Stearns.

All entrepreneurs know they're taking a risk. Most small businesses are more likely to fail than succeed, but Chen believes his company fills a niche that no other company is filling.

Solutions to new problems are "food and oxygen" for entrepreneurs, said Success magazine's Hardy.

"Entrepreneurs look for problems to solve. Fortunately, there are tons of new problems that didn't exist two years ago," said Hardy.

When Craig Cadarette lost his job, he looked around his Tennessee neighborhood for a problem that needed fixing.

For four years Cadarette was a shift supervisor at the ALCOA aluminum plant in a Tennessee town so entwined with the factory there it was named Alcoa, Tenn.

Cadarette oversaw 65 people working at the factory's 82 giant smelters, producing one million pounds of aluminum daily.

But when the bottom fell out of the aluminum market, and prices fell from $1.45 a pound to 60 cents, everyone including Cadarette saw the writing on the wall.

"We knew there were going to be layoffs, but there were rumors that supervisors might keep their jobs. The layoffs just kept growing, increasing like a snowball. April 1 was the day we were officially laid off and plant shut down," he said.

With partner, Terry McWilliams, a laid-off ALCOA line supervisor, Cadarette looked around town for a problem he thought his new business could fix.

Driving through the neighborhoods around Knoxville, the problem was staring him in the face on nearly every block he passed.

Hundreds of homes around Knoxville had been foreclosed upon and owners had left them in shambles. In order for real estate agents to put the bank-owned properties back on the market they needed to be cleaned and repaired.

Recession Proof Small Companies

"There are no jobs here. We wanted to find something that would be recession proof. So we started a business that would clean out foreclosed homes so they could go back on the market," Cadarette said.

Cadarette invested his severance, $10,000, to start the company by buying a power washer, carpet cleaning equipment and printing promotional fliers.

The former supervisor has mixed feelings about a business that profits in places where others have lost so much.

"I never wanted to take advantage of someone losing their home. It kind of sucks, but someone has to go in there and do it."

The plan, he says, is to grow the business to a point where he can hire some of former colleagues.

"I hope we can get to the point where we can hire some of people who worked with us. Lots of people we worked with know more than about aluminum – they're roofers and carpenters and have a lot of useful skills," he said.

It is still too early to tell just how many new businesses the recession has spurred, but according to Todd McCracken president of the National Small Business Association, downturns are "traditionally times of growth for small businesses."

"In the past we've spikes in new start ups during recessions," he said.

What makes this recession unique compared to the downturn in the 1980s is the difficulty entrepreneurs have accessing traditional means of capital and credit.

"We have never seen such a steep decline in home values. People starting new businesses to get credit and capital often took a second mortgage on their house to purchase inventory, machinery or buy a store," he said.

Additionally, he said, banks are giving fewer loans to new businesses and credit card companies are increasing interest rates, limiting two other traditional sources of startup capital.

The other "really significant factor," preventing the growth of small businesses is the rising cost of health care, he said.

Small Business Challenges

McWilliams said the thing that separates successful businesses from those that fail is having a good business plan.

"Small businesses," said President Obama, "are the heart of the American economy. They're responsible for half of all private sector jobs – and they create roughly 70 percent of all new jobs in the past decade. So small businesses are not only job generators, they're also at the heart of the American dream," he said.

Brian Conrad, 46, was laid off as a software engineer for the financial information company Dun and Bradstreet when his job was outsourced to India.

Investing his severance and "most of my life savings," Conrad and a partner opened the Blue Monkey restaurant and sports bar in Pennsylvania's Lehigh Valley.

In March, Conrad met Obama just before the president gave a speech on federal support of small businesses.

"Being an entrepreneur is a lot more responsibility that being an employee," said Conrad who has plans to open another restaurant. "It is all up to me whether this business succeeds or fails and I wouldn't have it any other way."